Following the Global Financial Crisis, policymakers and central banks around the world have been pursuing a myriad of “unconventional” monetary policies in an attempt to revitalize economic growth and/or combat disinflationary pressures. The adoption of negative interest rates is the latest monetary tool to be added to the policy toolbox—and looks to be the most unconventional one of all.

The scale of negative policy rates has reached unprecedented levels. The European Central Bank and the central banks of Denmark, Japan, Sweden and Switzerland have all adopted this drastic policy strategy. In fact, countries with negative policy rates cumulatively represent nearly 25% of global GDP according to the World Bank and are home to nearly 500 million people. While in this paper we refer to negative interest rates as the policy rates imposed by central banks in relation to various deposit and transactions within the banking sector, we also note that more than half of world’s sovereign bonds in a key S&P Global Index—the S&P Global Developed Sovereign Bond Index—carry negative interest rates.

No matter what the policy goal of negative rates may be across countries (e.g. counter weak inflation, curtail currency appreciation, spark economic growth), the impact and implications of negative policy rates remain uncertain.

S&P Global has gathered the views of a cross-section of our analysts and economists from across the company to discuss the impact of negative interest rates on various sectors, markets and national economies.

Among our findings:

Data in Europe is showing enough signs to suggest that negative interest rates are having the desired stimulative effect, either through incentivizing bank lending or the reduction in the value of the Euro, with its own positive impact on economic activity

There is little evidence to find a similar impact for Japanese economic performance. On top of that, the yen has not behaved as intended, and its strength has almost certainly limited the impact of negative interest rates for the country.

A policy of negative interest rates that remains in place too long could damage bank profitability, weakening one of the key credit transmission mechanisms that could help boost financial activity.

Political conditions complicate the use of fiscal policy to stimulate economies, leading to the rise of monetary tools such as negative interest rates. This is occurring even though fiscal policy may be a more effective tool and doesn’t carry with it the unintended consequence of incentivizing asset managers, insurance companies, pension funds and other market participants to increase their investment risk profiles.

The impact of negative policy rates has been thrown into more uncertainty with the UK vote to leave the EU, the subsequent fall in the value of the pound and the quantitative easing the Bank of England announced in early August. While the ECB’s goal in its negative interest rate policy is focused primarily on the dollar, having another currency slide relative to the dollar may complicate the ECB’s goals.